IEA Inflates Oil Supply Data; Peak Oil Came in 2008

The IEA’s 2009 World Economic Outlook continues to come under attack for its oil supplies forecast. First it was an agency whistleblower who claimed that the IEA’s oil figures were distorted by, among other factors, U.S. pressure, so as to avoid “panic buying.”

Then a prominent physics professor at Upsalla University issued a scathing rebuke of the IEA’s figures, essentially agreeing with the whistleblower

Now comes another attack.

The Oil Drum published a letter from Dr. Colin Campbell, a retired British Petroleum geologist, in response to the UK Guardian’s report on the whistleblower’s claims, using his considerable experience to weigh in on the controversy.

In 1998, after Campbell’s Scientific American article, The End of Cheap Oil was published, the IEA contacted him, and spent a week going over his data.

They eventually published their own report for the G-8 ministers with a table that caught Campbell’s attention. The table showed that oil demand would outpace supply by 2010, save for the entry of an item called “unidentified unconventional,” whose supply was predicted to meet as much as 20% of the world’s needs by 2020.

The table was included in the 1998 World Energy Outlook. The Unidentified Unconventional, says Campbell, was code for “shortage.” When this was published, the IEA got into trouble with the Organization for Economic Cooperation and Development (OCED) governments, and the following year’s World Energy Outlook, the “unidentified unconventional” became “Conventional Non-OPEC,” with no explanation.

The primary function of the IEA was to supervise OECD strategic oil stocks, which were supposed to be a defense against excessive demands by OPEC. So the IEA came to see it’s role as protecting consumer nations’ interests, and it therefore had every reason to downplay any notion of rapidy-depleting supplies and finite limits, because doing so would indirectly strengthen the hand of OPEC, Campbell writes.

If Campbell, who founded the Association for the Study of Peak Oil and Gas is right, then the IEA figure doubters—the whistleblower and the professor—are right.

Campbell goes on to explain how there is no particular technique in evaluating the size of an oil field early in its life, and that there is naturally a range of estimates. But, he says, those estimates have been subject to serious distortions by oil companies.

The oil companies have to comply with strict U.S. Stock Exchange rules created to prevent false exaggeration of oil resources, so they essentially do the opposite: report the minimum necessary and then continue to steadily revise the estimates upward, giving the false—yet comforting—impression of growing oil resources.

Another distortion began with OPEC’s competition for oil quotas on reported reserves, which began in the 1980s, when prices were low. Campbell writes that Kuwait suddenly added 50 percent to the size of its reserves in 1985 although nothing had changed in the oil fields. He suspects that the countries started reporting total oil found, not remaining reserves—a big difference.

Campbell then goes on to convincingly present his assessment that peak oil occurred last year, along with the great oil price spike. He writes that “regular conventional oil” peaked in 2005, and since then, the shortfall has been made up with unconventional (and very expensive) reserves, such as the Canadian tar sands.

He says that it’s more difficult to evaluate these non-conventional oils but suggests that the peak in all categories was passed in 2008. The rest of the story is that the surge in oil prices reached its own peak in 2008, which prompted traders to sell short on the futures market and for the industry to quickly drain their tanks before oil lost more of its value.

The high prices reduced demand, helping to cause a worldwide economic recession, which sent prices spiraling downward.

General global oil production since 1900. (image: lavisions.blogspot.com)
Campbell’s assessments are sobering, to say the least. More importantly, they are considerably more compelling than the claims of the anonymous IEA whistleblower, as they come from a known, respected source with over 50 years of experience in the study of oil reserves.

Campbell cites personal experiences from the last 30 years of his work in the field, all of which point to one simple conclusion: we are running out of oil much more quickly than most will admit, and world oil production peaked last year.

If Campbell’s claims are true and his conclusions are even partially accurate, the consensus timeline for oil depletion (adequate supplies to meet global demand through 2030) will accelerate at a breakneck pace.

To be clear, Campbell did not conclude his letter with a prediction of a worldwide oil crisis, but he did express hope that the IEA and other data reporting and collecting organizations in the oil industry would change their ways and report what he views as a more realistic assessment of the world’s oil supply.